Collective Investment Funds: Prior Notice Period for Withdrawals
| Published date | 26 May 2021 |
| Citation | 86 FR 28238 |
| Record Number | 2021-11130 |
| Section | Rules and Regulations |
| Court | The Comptroller Of The Currency Office,Treasury Department |
Federal Register, Volume 86 Issue 100 (Wednesday, May 26, 2021)
[Federal Register Volume 86, Number 100 (Wednesday, May 26, 2021)]
[Rules and Regulations]
[Pages 28238-28241]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-11130]
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DEPARTMENT OF TREASURY
Office of the Comptroller of the Currency
12 CFR Part 9
[Docket ID OCC-2020-0031]
RIN 1557-AE99
Collective Investment Funds: Prior Notice Period for Withdrawals
AGENCY: Office of the Comptroller of the Currency, Treasury.
ACTION: Final rule.
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SUMMARY: The OCC is adopting as final, with one minor change, the
interim final rule published in the Federal Register on August 13,
2020, that codifies and creates an exception to the standard withdrawal
period for a bank administering a collective investment fund invested
primarily in real estate or other assets that are not readily
marketable (a covered CIF). Pursuant to the interim final rule, a bank
administering a covered CIF may request OCC approval to extend the
standard withdrawal period under limited circumstances and if certain
conditions are met. The final rule adopts as final the changes made by
the interim final rule and introduces a minor revision to one of the
conditions necessary for the extension.
DATES: The interim final rule is effective May 26, 2021.
FOR FURTHER INFORMATION CONTACT: Beth Kirby, Assistant Director, Asa
Chamberlayne, Counsel, or Daniel Perez, Counsel, Chief Counsel's
Office, (202) 649-5490; or David Stankiewicz, Technical Expert for
Asset Management Policy, Market Risk Policy Division, Bank Supervision
Policy, 202-649-6360, Office of the Comptroller of the Currency, 400
7th Street SW, Washington, DC 20219.
SUPPLEMENTARY INFORMATION:
I. Background
A collective investment fund (CIF) is a bank-managed fiduciary fund
that holds pooled assets. A national bank or Federal savings
association (collectively, a bank) that establishes and operates a CIF
must do so in accordance with the criteria established under the
fiduciary activities regulation of the Office of the Comptroller of the
Currency (OCC) at 12 CFR 9.18.\1\ A CIF is funded through contributions
by the CIF's participants, which are the beneficial owners of the
fund's assets. A bank admitting a CIF participant or withdrawing all or
part of its participating interest (that is, allowing the participant
to, in effect, redeem a proportionate interest in the assets of the
CIF) must do so on the basis of a valuation of the CIF's assets.\2\
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\1\ Pursuant to 12 CFR 150.260, the terms ``bank'' and
``national bank'' as used in 12 CFR 9.18 are deemed to include a
Federal savings association.
\2\ 12 CFR 9.18(b)(5)(i).
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A bank administering a C IF invested primarily in real estate or
other assets that are not readily marketable (a covered CIF) may
require a prior notice period of up to one year for withdrawals.\3\ The
OCC previously interpreted this notice period requirement as requiring
the bank to withdraw an account within the prior notice period or, if
permissible under the CIF's written plan, within one year after prior
notice was required (standard withdrawal period).\4\ The OCC also
recognized, however, that there were circumstances when a longer
withdrawal period was appropriate. For example, during the 2009
financial crisis, the OCC permitted a bank to extend the time period
for withdrawals, subject to certain conditions.\5\
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\3\ 12 CFR 9.18(b)(5)(iii).
\4\ See, e.g., OCC Interpretive Letter No. 1121 (Aug. 2009)
(Interpretive Letter 1121).
\5\ Id.
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During normal market conditions, a bank can typically satisfy
withdrawal requests within the standard withdrawal period. However, in
the event of unanticipated and severe market conditions, a bank may be
faced with an increased number of withdrawal requests and reduced
market liquidity. In such conditions, a bank that is required to sell
CIF assets to satisfy withdrawals within the standard withdrawal period
could have difficulty realizing a fair value for those assets. This
could compel ``fire sales'' of CIF assets and lead to avoidable
economic harm for CIF participants, which would be contrary to general
fiduciary principles that require a CIF trustee to act in the best
interests of CIF participants.
II. Interim Final Rule
On August 13, 2020, the OCC published an interim final rule in the
Federal Register that codified the standard withdrawal period for a
bank administering a covered CIF and established a limited exception to
that withdrawal period. The exception was intended to enable a bank to
preserve the value of a CIF's assets for the benefit of fund
participants during unanticipated and severe market conditions, such as
those resulting from the current national health emergency concerning
the coronavirus disease (COVID-19) outbreak.
Under the interim final rule, to satisfy the standard withdrawal
period requirement, a bank administering a covered CIF that requires a
prior notice period for withdrawals generally must withdraw an account
within the prior notice period or, if permissible under the CIF's
written plan, within one year after prior notice was required.
Under the exception established by the interim final rule, a bank
may withdraw an account from a CIF up to one year beyond the standard
withdrawal period with OCC approval and if certain conditions are met.
Namely, the fund's written plan (including its notice and withdrawal
policy) must authorize an extended withdrawal period and be fully
disclosed to fund participants. In addition, the bank's board of
directors, or a committee authorized by the board of directors, must
determine that (1) due to unanticipated and severe market conditions
for specific assets held by the fund, an extended withdrawal period is
necessary in order to preserve the value of the fund's assets for the
benefit of fund participants; and (2) the extended withdrawal period is
consistent with 12 CFR part 9 and applicable law. The bank's board of
directors, or a committee authorized by the board of directors, must
also commit that the bank will act upon any withdrawal request as soon
as practicable. Finally, the rule provides discretion for the OCC to
impose additional conditions if the OCC determines that the conditions
are necessary or appropriate to protect the interests of fund
participants. The conditions established by this interim final rule
were intended to ensure that the exception is only granted if it is
consistent with fiduciary principles, applicable law, and the CIF's
written plan.\6\ To ensure that the exception is consistent with these
principles and requirements, and as described above, the OCC may impose
additional conditions, such as requiring periodic progress reports from
the bank.
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\6\ See 12 CFR 9.18(b)(1) (written plan requirements).
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In addition to the above, the interim final rule provided that if,
due to
[[Page 28239]]
ongoing severe market conditions, a bank has been unable to satisfy
withdrawal requests during the one-year extension period without
causing harm to participants, the bank may request OCC approval for up
to two additional one-year extensions. The OCC may only approve each
additional one-year extension if the OCC determines that the bank has
made a good faith effort to satisfy withdrawal requests during the
original extension period and the bank has been unable to satisfy such
requests without causing harm to participants due to ongoing severe
market conditions. The bank must also continue to satisfy the
conditions described above.
By creating a limited exception to the standard withdrawal period,
the IFR permits a bank administering a covered CIF to take appropriate
steps to satisfy account withdrawal requests during severe market
conditions, while permitting an orderly liquidation of sufficient
assets to raise cash through prudent and appropriate sales, as the
return of more normal market conditions permit.
III. Comments Received
The OCC received comment letters from two commenters--a trade
association and a law firm--that were relevant to the scope of the
rulemaking.
Both commenters requested that the OCC revise the interim final
rule to accommodate state-chartered banks that are required to comply
with the OCC's regulations under 12 CFR 9.18, either by reason of the
Internal Revenue Code, state law, or a CIF's written plan. In
particular, the commenters expressed concern that state-chartered banks
that are required to comply with 12 CFR 9.18 would be unable to comply
with the requirement for OCC approval. Accordingly, commenters
suggested that the exception to the standard withdrawal period be
revised to allow for notice or disclosure instead of requiring
approval, provided the interim final rule's enumerated conditions were
satisfied. Alternatively, the commenters suggested the OCC clarify the
application of the interim final rule to state-chartered banks.
The OCC uses the review and approval process to assess, among other
things, current market conditions, the number and dollar amount of
account withdrawals received, whether the bank satisfies the enumerated
conditions, whether additional conditions are necessary or appropriate,
and the bank's efforts to satisfy withdrawal requests. Accordingly, and
because the OCC does not determine requirements for non-OCC-regulated
institutions, the OCC is not revising the approval requirement in this
final rule. However, the OCC clarifies that it would not expect a
state-chartered bank to request OCC approval to extend its withdrawal
period, nor does the OCC have the authority to approve a request
received from a state-chartered bank.
Commenters also objected to the requirement that, in order for a
bank to receive an exception to the standard withdrawal period, the
bank's board of directors, or a committee authorized by the board of
directors, must ``commit that the bank will act upon any withdrawal
request as soon as practicable.'' In particular, commenters raised
concerns that the term ``commit'' in this context was ambiguous and
raised compliance concerns. In response to this comment, the OCC is
revising this condition, as described in the subsequent section.
One commenter raised concerns with the requirement that the bank's
board of directors, or a committee authorized by the board of
directors, ``determine that, due to unanticipated and severe market
conditions for specific assets held by the fund, an extended withdrawal
period is necessary in order to preserve the value of the fund's assets
for the benefit of fund participants.'' The commenter argued that the
conditions set by the interim final rule should be aligned with past
OCC guidance and that a bank should be able to avail itself of the
exception to the standard withdrawal period if it has ``valid reasons''
or if the extension is in the best interest of the fund's participants,
rather than having to prove that the exception is necessary to
``preserve the value of the fund's assets.'' The OCC believes that a
narrower and more specific requirement is necessary to avoid ambiguity
and that it provides more concrete support for the conclusion that an
extension to the standard withdrawal period would be in the interest of
fund participants. Accordingly, the OCC is not revising this
requirement.
This commenter also requested that the OCC clarify the number of
submissions to the OCC required for the exception to the withdrawal
period. Namely, the commenter suggested that the OCC clarify that a
bank may submit a single approval request to the OCC for a one-year
extension to the standard withdrawal period that would cover any and
all account withdrawal requests that the bank has received or may
receive in the future in the given year. The commenter suggested that a
bank should be able to request additional extensions even if it has not
yet received additional redemption requests.
In response to this comment, the OCC is clarifying that a bank may
submit a single request for OCC approval covering any account
withdrawal requests that were received prior to the bank's submission
to the OCC. A bank is not required to prepare different submissions for
every account withdrawal request received. However, the OCC would not
approve an application to extend the withdrawal period in connection
with account withdrawal requests that have not yet been received by the
bank. Under the standard withdrawal period, a bank may withdraw an
account from a CIF up to one year after the date on which notice was
required, if permitted by the CIF's written plan. Approving an
application with respect to future withdrawal requests would require
the OCC to make a determination, using incomplete information, as to an
extended time horizon over which conditions may change.
IV. Final Rule
This final rule adopts as final the changes made by the interim
final rule, but revises, in response to comments received, one of the
enumerated conditions for extending the standard withdrawal period. As
described above, in order to receive an exception to the standard
withdrawal period, a bank's board of directors (or a committee
authorized by the board of directors) must commit that the bank will
act upon any withdrawal request as soon as practicable. Pursuant to
this final rule, the OCC is revising this condition to read, ``The
bank's board of directors, or a committee authorized by the board of
directors, represents that the bank will act upon any withdrawal
request as soon as practicable and consistent with fiduciary duties.''
The OCC believes that the revised condition accomplishes its intended
purpose without imposing unintended legal and compliance risk.
V. Administrative Law Matters
A. Administrative Procedure Act
Under 5 U.S.C. 553(b)(B) of the Administrative Procedure Act (APA),
an agency may, for good cause, find (and incorporate the finding and a
brief statement of reasons therefore in the rules issued) that notice
and public procedure thereon are impracticable, unnecessary, or
contrary to the public interest. The OCC issued the August 13, 2020,
interim final rule without notice and comment based on concerns that
the disruption and stress in the real estate markets and other markets
for not readily marketable assets resulting from the outbreak of the
COVID-19
[[Page 28240]]
emergency, coupled with requiring a bank to withdraw an account within
the standard withdrawal period, could undermine the ability of a bank
to realize an appropriate value for CIF assets and be harmful in
preserving the value of the CIF's assets for the benefit of fund
participants. Accordingly, the OCC found that the public interest was
best served by implementing the interim final rule immediately upon
publication in the Federal Register.
The effective date of these corrections is May 26, 2021. Under 5
U.S.C. 553(d)(3) of the APA, the required publication or service of a
substantive rule shall be made not less than 30 days before its
effective date, except, among other things, as provided by the agency
for good cause found and published with the rule. This final rule
implements one change relative to the August 13, 2020, interim final
rule. The change is being made in response to a commenter and is
intended to reduce ambiguity and compliance risks for banks seeking an
exception under the rule. Because the severe market conditions related
to the COVID-19 outbreak are ongoing as of the date of issuance of this
final rule, the OCC finds that notice and public procedure is contrary
to the public interest and that good cause exists for dispensing with
the delayed effective date requirement.
B. Congressional Review Act
For purposes of the Congressional Review Act, the Office of
Management and Budget (OMB) makes a determination as to whether a final
rule constitutes a ``major'' rule.\7\ If a rule is deemed a ``major
rule'' by the OMB, the Congressional Review Act generally provides that
the rule may not take effect until at least 60 days following its
publication.\8\
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\7\ 5 U.S.C. 801 et seq.
\8\ 5 U.S.C. 801(a)(3).
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The Congressional Review Act defines a ``major rule'' as any rule
that the Administrator of the Office of Information and Regulatory
Affairs of the OMB finds has resulted in or is likely to result in (A)
an annual effect on the economy of $100,000,000 or more; (B) a major
increase in costs or prices for consumers, individual industries,
Federal, State, or local government agencies or geographic regions; or
(C) significant adverse effects on competition, employment, investment,
productivity, innovation, or on the ability of United States-based
enterprises to compete with foreign-based enterprises in domestic and
export markets.\9\
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\9\ 5 U.S.C. 804(2).
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As required by the Congressional Review Act, the agencies will
submit the final rule and other appropriate reports to Congress and the
Government Accountability Office for review.
C. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521) (PRA)
states that no agency may conduct or sponsor, nor is the respondent
required to respond to, an information collection unless it displays a
currently valid OMB control number. The interim final rule contained
reporting requirements under the Paperwork Reduction Act. With the
OCC's approval, and if certain conditions are satisfied, a bank may
withdraw an account from a collective investment fund up to one year
after the end of the standard withdrawal period. In addition, a bank
may request that the OCC approve an extension beyond the one-year
extension period, if certain conditions are satisfied. Extensions past
the initial one-year extension must be requested and approved annually,
for a maximum of two years after the initial one-year extension period.
OMB provided emergency PRA approval for the interim final rule. Renewal
of the emergency approval is currently underway.
Title of Information Collection: Fiduciary Activities.
OMB Control No.: 1557-0140.
Frequency: On occasion.
Affected Public: Businesses or other for-profit.
Estimated number of respondents: 4.
Total estimated annual burden: 220 burden hours.
Comments continue to be invited on:
a. Whether the collections of information are necessary for the
proper performance of the OCC' including whether the information has
practical utility;
b. The accuracy or the estimate of the burden of the information
collections, including the validity of the methodology and assumptions
used;
c. Ways to enhance the quality, utility, and clarity of the
information to be collected;
d. Ways to minimize the burden of the information collections on
respondents, including through the use of automated collection
techniques or other forms of information technology; and
e. Estimates of capital or startup costs and costs of operation,
maintenance, and purchase of services to provide information.
D. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) \10\ requires an agency to
consider whether the rules it proposes will have a significant economic
impact on a substantial number of small entities.\11\ The RFA applies
only to rules for which an agency publishes a general notice of
proposed rulemaking pursuant to 5 U.S.C. 553(b). As discussed
previously, consistent with section 553(b)(B) of the APA, the OCC
determined for good cause that general notice and opportunity for
public comment is impracticable and contrary to the public's interest,
and therefore the OCC did not issue a notice of proposed rulemaking
prior to issuing the August 13, 2020, interim final rule. Because the
agency did not publish a notice of proposed rulemaking, the OCC
concludes that the RFA's requirements relating to initial and final
regulatory flexibility analysis do not apply to this final rule.
Nevertheless, when issuing the August 13, 2020, interim final rule, the
OCC requested feedback on ways that the OCC could reduce any potential
burden of the interim final rule on small entities. No comments were
received in response to this request.
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\10\ 5 U.S.C. 601 et seq.
\11\ Under regulations issued by the Small Business
Administration, a small entity includes a depository institution,
bank holding company, or savings and loan holding company with total
assets of $600 million or less and trust companies with total assets
of $41.5 million or less. See 13 CFR 121.201.
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E. Riegle Community Development and Regulatory Improvement Act of 1994
Pursuant to section 302(a) of the Riegle Community Development and
Regulatory Improvement Act (RCDRIA),\12\ in determining the effective
date and administrative compliance requirements for new regulations
that impose additional reporting, disclosure, or other requirements on
insured depository institutions (IDIs), each Federal banking agency
must consider, consistent with the principle of safety and soundness
and the public interest, any administrative burdens that such
regulations would place on depository institutions, including small
depository institutions, and customers of depository institutions, as
well as the benefits of such regulations. In addition, section 302(b)
of RCDRIA requires new regulations and amendments to regulations that
impose additional reporting, disclosures, or other new requirements on
IDIs generally to take effect on the first day of a calendar quarter
that begins on or after the date on which the regulations are published
in final form, with certain exceptions, including for good cause.\13\
For the reasons described above, the OCC finds good cause exists under
section 302 of
[[Page 28241]]
RCDRIA to publish the final rule with an immediate effective date.
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\12\ 12 U.S.C. 4802(a).
\13\ 12 U.S.C. 4802.
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F. Use of Plain Language
Section 722 of the Gramm-Leach-Bliley Act \14\ requires the Federal
banking agencies to use ``plain language'' in all proposed and final
rules published after January 1, 2000. In light of this requirement,
the OCC has sought to present the final rule in a simple and
straightforward manner. The OCC invited comment at the interim final
rule stage on whether there were additional steps the OCC could take to
make the rule easier to understand. No comments were received in
response to this request.
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\14\ 12 U.S.C. 4809.
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G. Unfunded Mandates Act
As a general matter, the Unfunded Mandates Act of 1995 (UMRA), 2
U.S.C. 1531 et seq., requires the preparation of a budgetary impact
statement before promulgating a rule that includes a Federal mandate
that may result in the expenditure by State, local, and tribal
governments, in the aggregate, or by the private sector, of $100
million or more in any one year. However, the UMRA does not apply to
final rules for which a general notice of proposed rulemaking was not
published. See 2 U.S.C. 1532(a). Therefore, because the OCC found good
cause to dispense with notice and comment for this final rule, the OCC
concludes that the requirements of UMRA do not apply.
List of Subjects in 12 CFR Part 9
Estates, Investments, National banks, Reporting and recordkeeping
requirements, Trusts and trustees.
Authority and Issuance
Accordingly, for the reasons set forth in the preamble, the interim
final rule amending 12 CFR part 9 that was published at 85 FR 49229 on
August 13, 2020, is adopted as final with the following change:
PART 9--FIDUCIARY ACTIVITIES OF NATIONAL BANKS
0
1. The authority citation for part 9 continues to read as follows:
Authority: 12 U.S.C. 24 (Seventh), 92a, and 93a; 15 U.S.C. 78q,
78q-1, and 78w.
0
2. Section 9.18 is amended by revising paragraph (b)(5)(iii)(C)(4) to
read as follows:
Sec. 9.18 Collective investment funds.
* * * * *
(b) * * *
(5) * * *
(iii) * * *
(C) * * *
(4) The bank's board of directors, or a committee authorized by the
board of directors, represents that the bank will act upon any
withdrawal request as soon as practicable and consistent with its
fiduciary duties; and
* * * * *
Michael J. Hsu,
Acting Comptroller of the Currency.
[FR Doc. 2021-11130 Filed 5-25-21; 8:45 am]
BILLING CODE 4810-33-P
